Ireland is not Greece in economics despite currently being branded alongside Portugal, Italy, Greece and Spain in the so called ‘PIIGS’ group according to the Ernst & Young Economic Eye Summer Forecast for the island of Ireland, launched today. The 2007 peak employment levels will not be seen again until 2022.
Ireland has key economic competitiveness advantages which will ensure its emergence from association with this group -- helping it achieve the second highest economic growth rate within the Eurozone at 2.8% (3.2% for GNP) in 2011 (behind Slovakia on 4%).
“Though there are similarities in the scale of fiscal deficits, bloated and now shrinking construction sectors (as in Spain) and serious problems in banking (as in Greece), there are a number of competitive differences which will aid Irish recovery and help distinguish it from other PIIGS members,” says Neil Gibson, Special Advisor to the Ernst & Young Economic Eye. Although Ireland is bottom of the Eurozone league in terms of the size of its fiscal deficit in 2009 (at -14% GDP based on the Eurostat fiscal definition), it is top of the Eurozone league for graduate skills in the 25-34 age group, has the fastest rate of price correction (CPI index down 4.5% in 2009) boosting cost competitiveness, and is second in export orientation at 87% (behind Luxembourg and joint with Malta).
Gibson comments “It is these ‘fundamentals’, along with a range of sophisticated broad sectoral experience, low corporation tax and early and decisive fiscal action taken by the Government, that lie behind the more optimistic medium-term outlook for the ROI economy. However, the need to control and repay debt will be crucial to ensuring this forecast will become a reality. “
However, according to Finfacts, jobs in the foreign-owned sector are back to 1998 levels and Ireland is very dependent on the fortunes of the debt challenged big advanced economies.
In Northern Ireland, the lower export orientation, greater public sector dependence (which will mean fiscal tightening will be particularly felt in NI), and higher level of UK inflation, are factors in the more modest NI outlook over the medium-term.
The Island of Ireland economy is emerging from an economic depression having experienced an ‘eye-watering’ 10% decline in economic output since 2008 according to the report.
Economic Eye forecasts that the Republic of Ireland (ROI) will endure a further 1.0% contraction in GDP in 2010 (although on a quarterly basis, the economy is predicted to start growing again in the first quarter of 2010), before positive annual growth of 2.8% in 2011. The Northern Ireland (NI) picture is slightly more positive. The forecast estimates that NI, following the lead of the UK, emerged from its worst economic contraction on record in Q4 2009 with economic growth of 0.8% forecast for 2010 and 2.2% for 2011.
However, Economic Eye also warns that significant uncertainty still remains and several factors will potentially slow economic recovery in both regions.
The ROI labour market continues to contract, albeit less severely than before, with latest quarterly figures showing a 1.2% fall in employment. NI appears to have emerged from its worst economic contraction on record with fewer job losses than expected. Although data shows that unadjusted employment expanded by 1% in NI in Q4 2009, this is expected to be reversed in Q1 2010.
The forecast confirms that ROI’s job rebound will not recover to 2007 peak employment levels until 2022, with the NI recovery expected to restore peak employment by 2017. The NI recovery period is sooner as it has suffered a lower rate of decline in employment levels.
Economic Eye confirms the business services sector, which includes software, consultancy and accountancy, remains critical to economic recovery in both ROI and NI. Between 2010 and 2020 Economic Eye predicts that this sector will create 100,000 net jobs across the all-island economy compared to just 27,000 in construction for the same period. Business services are also expected to make up a very high proportion of net new jobs - 34% of all net new jobs in ROI and 61% in NI between 2010 and 2020.